hmm, could a US citizen earn millions of dollars worth of AUD without ever paying tax on it? let's say they are a currency trader and started out with 1 USD but traded it up to 1,000,000 AUD.
let's say they never ever 'cash out' to USD, but manage instead to by 1,000,000 AUD worth of food, electricity, clothing, fuel, etc.
The food, electricity, and fuel *are* cashing out. When you acquire a consumable good and then consume it, you are cashing out.
replace 'AUD' with wow gold if you like... it's still the same question... could one earn millions of dollars worth of wow gold and then spend that gold directly (through private transactions) on food, electricity, clothing, fuel, etc, and pay no tax on that incoming wealth?
No, but that's because spending it or trading it for a good you then consume is cashing out. The question is whether you have to pay tax on *unrealized* capital gains. That is, assets you hold that have some value but that you have not put into either a hard currency or a form in which they can be consumed.
At least in the United States, Bitcoins are just like items in an MMORPG. You can acquire them, hold them, and they can go up in value tax free. If you lose them or they go down in value without you ever cashing out, no taxes are due. Until you convert them into hard currency or exchange them for a commodity you intend to consume, no taxes are due. Your tax basis in the Bitcoins would typically be deductible (I'm oversimplifying a bit here. There are some exceptions.)
